The Los Angeles Times reports Blue Shield of California is proposing to up individual plan premiums by an average of 12 percent in 2013, the penultimate year heading up to the launch of the California Health Benefit Exchange (Covered California) in 2014. Blue Shield’s rate hike is somewhat lower than California’s individual market share leader, Anthem Blue Cross, which last month informed regulators it would boost 2013 rates between 15 and 18 percent for its plans.
Both payers cite rising medical treatment costs for the rate increases. According to the Times story, Blue Shield is also boosting its reserves to cover claims costs from an expected influx of new customers in 2014, when payers must accept all applicants without medical underwriting and the state’s health benefit exchange will offer income tax credit subsidies to defray premium costs. “It’s a once-in-a-lifetime change in the healthcare market that will bring a lot of volatility, and we need higher reserves for that,” Blue Shield spokeswoman Lindy Wagner told the Times.
Trummel, grappling with his second increase of the year, isn’t holding his breath. But he’s hoping that the new state-run marketplace where people will be able to buy health insurance under the federal health law in 2014 will yield an option that offers him some relief until he qualifies for Medicare.
“If I could get into that (the marketplace), I might have only one more year of this agony with Anthem Blue Cross,” Trummel said. “I’m just holding on until either the health law or Medicare will kick in.”
In its rate request, Anthem said its medical costs for this segment of the business are increasing nearly 11% and what it actually pays is rising 13.5% after adjusting for its portion after customer deductibles.
With those cost pressures, Anthem said that the profit margin on its individual insurance business in California is less than 1% this year and that it expects to lose money next year even with these proposed rate increases.
In addition to the 18% rate increase for about 630,000 customers, Anthem is seeking a separate rate hike of 15%, on average, for an additional 100,000 policyholders whose plans are regulated by the California Department of Managed Health Care. An agency spokeswoman said it is reviewing Anthem’s proposed rate increase and those of other companies.
The death spiral of California’s individual health insurance market appears to be speeding up. The market segment — which covers about eight percent of working age Californians — has been plagued by adverse selection as relatively healthy people drop coverage. That in turn forces managed care plans and insurers to boost premiums to make up for the lost dollars when healthier people pull out of the pool and to cover the costs incurred by the less healthy who feel they must keep their coverage in place. Exacerbating the problem, payers attempt to staunch claims with strict medical underwriting guidelines that reject relatively healthy individuals whose premiums could bolster the solvency of the pool. As premiums keep rising, even more people question the value of paying the higher rates. Or can’t afford them even if they want coverage as monthly premiums equal the size of modest home mortgage payments. As the state’s individual market fails, self-employment is becoming synonymous with being medically self-insured.
Take for example, the Libresco family of San Rafael, California, mentioned in this recent Los Angeles Times story on the latest round of rate increases by the state’s largest individual market payer, Anthem Blue Cross:
Last month, Anthem notified Josh Libresco, a 57-year-old marketing researcher in San Rafael, that his family’s monthly premium would increase 29% to $1,636, effective May 1. This is after Anthem raised the deductible for the family of four to $5,900 from $5,000 last fall as well as increasing co-payments for doctor visits and prescription drugs.
“I don’t know how people can afford these increases every year. We are about at our limit,” Libresco said. “Whether it’s 20% or 29%, it’s still an enormous number.”
It’s not hard to see why this family might be inclined to drop its coverage. Especially when they are essentially getting only catastrophic coverage but not at a price they would expect to pay for it.
Anthem Blue Cross: California individual managed care plan market shrinking, necessitating higher premiums
DMHC sent a letter to Anthem Blue Cross asking for an explanation for the rate increase and why it is higher in comparison to indemnity-based insurance products with similar deductibles. DMHC regulates managed care plans in the state.
In an April 25 letter in response to DMHC, Anthem Blue Cross states its individual managed care plan pool is shrinking. The letter strongly implies adverse selection requires it to boost rates to keep up with losses incurred by those members remaining in the pool who tend to use high levels of medical services. Anthem Blue Cross projects it will incur a medical loss ratio of 88.5 percent for individual managed care products for 2011 after a 16 percent rate hike and increased deductibles effective May 1.
More evidence the individual health insurance market segment in the nation’s biggest individual market — California— appeared in today’s Los Angeles Times. While an Anthem Blue Cross spokeswoman wouldn’t confirm the account, the newspaper reports a couple was told by the insurer it was shuttering the couple’s $2,500 deductible plan because the risk pool is shrinking and no longer viable.
“A shrinking risk pool will eventually mean that the only people left in the plan will be ones with preexisting conditions,” John Barrett, a Pasadena health insurance broker told The Times. “Over time, rates would go up more than other plans.” In a nutshell, that describes adverse selection in which insureds likely to place the greatest demands on the risk pool comprise an increasingly larger portion of the pool, forcing the insurer to raise premiums in order to ensure the pool remains solvent.
The report comes a little more than two months after Paul Markovich, COO of Blue Shield of California, told a Sacramento, Calif. health care forum that adverse selection is placing “tremendous stress” on the individual health insurance market.
Two newspaper accounts of substantial recent rate increases for individual health insurance premiums approved by the California Department of Insurance this week strongly suggest the segment is in deep trouble and poised to collapse upon itself from both ends.
The stories show that both insurers and consumers believe the segment is growing economically unsustainable amid rapidly rising medical costs.
While Blue Shield of California will boost rates on its individual health insurance policies by an average of 18.2 percent, the nonprofit insurer will still be operating at a loss. “Even with these increases, we’ll be losing money from our individual policies,” Blue Shield spokesman Tom Epstein told the Sacramento Bee. Epstein said the red ink could total in the millions of dollars.
Market share leader Anthem Blue Cross will increase rates by 14 to 20 percent effective Oct. 1 for nearly 800,000 individual California policyholders, the Los Angeles Times reports. “It’s already verging on completely unaffordable,” said Mary Feller, 57, of Northern California, told the newspaper. “If our insurance keeps going up at this rate, we’ll lose it.” And in a still anemic economy, those rate hikes appear even less affordable.
When selling individual health insurance produces losses for insurers and policyholders can no longer afford the premiums, the market is essentially dead. The only question is whether it will be pronounced so before 2014 when insurance purchasing exchanges of the Patient Protection and Affordability Act are set to begin operating. I predict it will.